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Ghana Seeks Aid from IMF

Ghana
The Western African country of Ghana recently announced that it will seek the assistance of the International Monetary Fund in order to help bolster the country’s currency.

Although the country was once a beacon of hope for strong economies in Africa, it is currently struggling with high rates of inflation — with the current rate at 15 percent. A high inflation rate means that prices of goods are increasing too fast for people’s incomes and standards of living to keep up.

The cedi, Ghana’s currency, has fallen 40 percent against the U.S. dollar this year, moving it to the forefront of one of the world’s worst-performing currencies.

While the country is a major exporter of gold, oil and cocoa, Ghana continually struggles with budget and account deficits. President John Dramani Mahama stated that his government is open to assistance, but emphasized that it is not a bailout.

The country’s finance minister was similarly defensive. In an interview with BBC, the minister said that Ghana could fix its own currency problems and that receiving funding from the IMF was a last resort.

The country could tackle inflation by freezing wages, although this is an unpopular solution among citizens.

The IMF assistance is forecast to help boost investor confidence as the government prepares to sell as much as $1.5 billion in Eurobonds by the end of August.

The country last went to the IMF for aid in 2009, when it secured a $600 million package over three years. The government also has received assistance in the past from a campaign to help poor countries, wherein the majority of its debt was written off.

Michael Kafe, an economist from Johannesburg noted in an interview with BBC that the recommended three year program from the IMF is disappointing.

Kafe explained Ghana’s continued need for support, “This likely points to greater focus on short-to-medium-term solutions for the country’s foreign-exchange issues and not what we see as necessary medium-to-long-term solutions required to deal with chronic balance of payments imbalances that have historically stoked cedi weakness.”

-Caroline Logan

Sources: BBC, Bloomberg
Photo: AFKinsider

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The International Monetary Fund: Friend or Foe?

Growth does not happen instantaneously and, oftentimes, catalyzing economic growth is a decades-long venture. No one expects positive results immediately, but people do expect a fair approach to promoting wealth. In times of crisis, most countries answer to the same worldwide organizations dedicated to ameliorating economic recession. Primarily, the International Monetary Fund (IMF).

Founded shortly after World War II, the IMF’s mandate was to promote international trade and economic cooperation by aiding countries in times of crisis, vis-a-vis loans and budgetary advice. It is predominantly counseled by six nations according to a weighted voting system. Germany, France, Japan, Britain, China and the United States control over 50 percent of the organization’s voting power. This is an important consideration when one considers that small, poverty-stricken countries, like those in Africa or Latin America, have absolutely no say in the IMF’s policies in comparison to a few powerful member states.

While the IMF may masquerade as an institution seeking to mitigate poverty, its economic decisions stem from countries that prioritize their own power and wealth. Noam Chomsky, a prominent political analyst and professor emeritus at MIT, described the works of the IMF and its top-member nations as “Designed for capital, not people.”

Most loan agreements from the International Monetary Fund come with harsh conditions that encourage the eventual triumph of capital while simultaneously removing social safety nets. Stipulations on loan agreements require severe cutbacks on wages and welfare in order to receive critically needed funds. Invariably, these loan conditions target the programs used by the working class majority.

News outlet Global Exchange (GE) documents the history of IMF protocol, reporting that “The IMF and World Bank frequently advise countries to attract foreign investors by weakening their labor laws – eliminating collective bargaining laws and suppressing wages.” Rather than encouraging domestic development, the IMF enforces economic policies that favor en mass, cheap exports operated through low wage labors costs and weakly regulated industries.

The results of Latin America’s arrangement with the IMF is indicative of the results of a “capital over community” approach. Argentina, once considered the model of financial prowess by the IMF, has steadily declined following the organization’s intervention during the late 90’s. According to University of Washington professor Victor Menaldo, “Public investment is the lowest it has ever been, less than 2 percent of GDP. Taxes on capital gains are less than 5 percent as of 2000. Lastly, along with Argentina, Brazil and Mexico are experiencing the highest amount of foreign debt in their histories.”

For many developing nations and countries under recession, poverty can be right around the corner. The way international organizations and enterprises collaborate in dealing with such potential poverty will determine whether a nation prospers or stagnates. Eliminating poverty is dependent on adjusting the failures of mainstream economics. This means stepping away from the IMF, preventing reductions in labor laws and not withholding loan agreements on conditions—such as eliminating bargaining rights or striking pensions—that have shown to only hurt economies in both the short and long term.

— Michael Giacoumopoulos

Sources: Global Exchange, The Tech, The Washington Post
Photo: NSZ

African Infrastructure Projects Boom

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The 50 countries that make up the African Caucus recently released a statement requesting additional support for large-scale infrastructure projects on the continent. In their address to the World Bank and the International Monetary Fund (IMF), the officials requested funding for these projects, as well as assistance with debt relief.

Large-scale infrastructure projects in Africa have gained momentum in the past year, including U.S. President Barack Obama’s call for U.S. support for an energy grid for the continent. The meeting among World Bank and IMF governors resulted in a Single Infrastructure Project Preparation Facility that will help leverage support for these large-scale projects.

In addition to supporting these bi-lateral and multi-lateral projects, the African Caucus has asked the World Bank to assist with identifying private sources of capital that may help fund these projects. These large-scale infrastructure projects will include energy, water, transportation, and sanitation development efforts.

The World Bank recently approved financing for a USD $340 million hydroelectric project in Africa’s Great Lakes region. The Regional Rusumo Falls Hydroelectric Project will utilize the power from the Rusumo Falls and will eventually generate 80 megawatts of electricity.

The International Finance Corporation (IFC), a member of the World Bank Group, has also undertaken significant infrastructure projects on the continent. In 2012, IFC funding for these projects reached USD $1 billion. The IFC focuses its projects on renewable energy and sustainable infrastructure projects due to its increased concern for global climate change.

President Jacob Zuma of South Africa recently invited businesses from the BRIC (Brazil, Russia, India, and China) to invest in Africa’s infrastructure development. In his address at the BRIC Business Council, Zuma emphasized the commercial opportunities that would open, given improved infrastructure across the continent.

The China Development Bank (CDB) recently announced that their investment in African infrastructure projects has reached USD $2.4 billion. This funding has gone to support projects in mining development, energy, and agricultural and mechanical manufacturing.

During his June 2013 trip to Africa, Obama announced a USD $7 billion investment in energy infrastructure projects in the Sub-Saharan region of the continent. While there are critics of this energy plan, it seems to be one in a long line of infrastructure projects planned for the continent.

– Callie D. Coleman
Sources: Afrique, IFC, USA Today, South Africa Info, Ventures
Photo: IPS

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900 Million: Just Past Poverty

International-Monetary-Fund-report
While 1.2 billion people live in poverty, subsisting on less than $1.25 a day, a recent study published by the International Monetary Fund states that 900 million people are at risk of falling into poverty if another economic crisis occurs.

A significant recession such as the Great Recession that hit the global economy in 2008 could increase the number of people living in poverty by as much as 75 percent.  This would add three times the size of the U.S. population to the world’s poor, greatly increasing the strain on humanitarian and foreign aid organizations.

The IMF report does praise the work that has been done to alleviate global poverty and bolster the world economy, but it cautions against reductions in foreign aid.

While USAID creates new markets and trade partners for the United States, roughly 40 percent of the world’s population remains unemployed. The recent recession exacerbated income inequalities, making it more difficult for the employed to support their families on their existing income.

A subsequent recession could occur if the eurozone, already destabilized by the Cyprus bailout, is further disrupted, so the U.S. government would have to maintain or increase USAID in order to support expansions to its programs.

The number of people currently living in poverty already makes up about 17% of the world’s population, and 900 million more would raise this number to 30 percent.

– Katie Bandera

Sources: IMF, The Guardian, The Huffington Post
Photo: Worldwide Center

Africa’s Economies Thrive During Global Recovery

Africa’s Economies Thrive During Global Recovery
The global community is slowly recovering from economic difficulties across the board. However, countries in Africa continue to grow at rates that surpass all but their Asian counterparts.

According to the International Monetary Fund, African economies will remain strong throughout this year and next. GDP for the region is expected to increase by 5.3 percent while certain countries will experience even larger growth rates. Mozambique’s economy is projected to increase by 8.4 percent while Nigeria will increase by 7.2 percent. Despite the drop in the value of gold, South Africa is expected to grow by 3.3 percent this year and 6.1 percent next year. In its entirety, the global recovery is occurring at a much slower pace.

These numbers do not seem that extreme unless they’re compared to the United States’ growth rate which is predicted to increase this year to three percent. This is up from last year’s increase of roughly 2.2 percent.

In tough economic conditions such as these, the United States is being left behind in the cultivation of African businesses and the economy. China has been extremely aggressive in creating these relationships and has been reaping the benefits of it. China’s total economic growth is set for 7.7 percent growth this year.

By having a lax or overcautious attitude regarding African investment (both philanthropic and purely business), it is very possible that the United States is missing out on being a part of future success.

– Pete Grapentien

Photo: A Never Ending Dream

Why Investing in Africa is the Right Move

Why Investing in Africa is the Right MoveAccording to the International Monetary Fund (IMF), there is a 16 percent chance that global growth will dip below two percent this year. An unlikely contender as far as investment options are concerned, investing in Africa may be a lucrative opportunity for investors looking for solace in a declining global market.

Africa is notorious for being a troubled continent. However, as the economic problems begin to fade, stock markets are projected to rise, making Africa a prime candidate to overtake Asia in terms of economic growth by 2015.

The IMF has estimated that in the next five years, 10 out of the 20 fastest-growing economies will be in sub-Saharan Africa and two will be in North Africa. An example of exploding economic growth is Nigeria, where the average income has quadrupled since 2000. Sierra Leone, Ghana, Kenya, and Ethiopia are all seeing quick economic inclines as well.

While African markets are becoming more and more likely to expand rapidly in the next few years, making investing in Africa a lucrative choice, many investors are still reluctant to invest due to the lack of liquidity (ability to buy and sell) of African stock.

– Pete Grapentien

Source: The Telegraph